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Telecom reform bill introduced at Legislature

Telecommunications providers in Colorado are at odds over whether lawmakers should disconnect a piece of legislation that would bring the most significant pricing and regulatory updates to the industry in over two decades.

Reps. Angela Williams, D-Denver, and Carole Murray, R-Castle Rock, are sponsoring the 71-page bipartisan Senate Bill 157 in the House and Sens. Mark Scheffel, R-Parker, and Lois Tochtrop, D-Thornton, are carrying it in the Senate. The legislation would update the state’s telecommunications laws, most controversially phasing out by 2025 the state’s High Cost Support Mechanism. The program subsidizes the cost of constructing landlines and other infrastructure related to providing phone and Internet services in rural parts of the state.

The subsidy would be eliminated for carriers in areas of the state where there are five or more competitors; in areas without five or more competitors, the subsidy would stay. An exemption would be made for providers with less than 75,000 access lines.

The bill would cap the subsidies at $7 million for carriers that still qualify for the funds, and the Public Utilities Commission would have the authority to determine competitive markets and the amount each carrier receives.
Telecom carriers currently receive the subsidy through a 2.9 percent surcharge on customers’ bills, and as of 2011 there was about $54 million in the fund. Monroe, La.-based CenturyLink, the bill’s leading critic, receives about $50 million from the fund; Fort Morgan-based Viaero Wireless receives about $2.5 million; and nine rural carriers that are members of the Colorado Telecommunications Association receive about $1.5 million collectively. The surcharge is expected to drop to 2.4 percent for customers in its first year and then gradually decline until it is phased out in 2025.

Supporters of the legislation — including the Colorado Telecommunications Association, AT&T Colorado and Viaero Wireless, to name a few — are excited that 50 percent of the savings from phasing out the program would go back to ratepayers, while the other 50 percent would go to the Governor’s Office of Information Technology to fund broadband investments in rural parts of the state. It is unclear, however, exactly how much funding the IT office would receive, with estimates anywhere from $25 million to $300 million over the next decade.

CenturyLink, which is the largest provider of rural telecom services in Colorado, along with a handful of supporters of the bill are asking for clarification on how much money will end up in the Office of Information Technology.

But overall, proponents of the bill point out that the state’s current telecom laws were written back in 1987, and they believe it is time to “modernize” the rules and regulations.

“The bill is obviously about eliminating regulations that are 20 years old; it’s about eliminating this consumer surcharge, which are consistently a headache and frustration for customers; and the bill’s about investing in broadband,” said Bill Soards, president of AT&T Colorado.

Scheffel says the stakeholder process was not easy, noting the more than 18-month journey, but he says the work was necessary to address the state’s archaic telecom rules and regulations.

“Technologies are changing at the speed of light and customers have more telecom choices today than ever before,” Scheffel said Wednesday at a press conference announcing the legislation, which was only introduced last Thursday. The bill has already been scheduled for a hearing Monday in the Senate Business, Labor and Technology Committee in the Old Supreme Court Chambers.

“Colorado’s telecommunications laws are decades old and in desperate need of reform,” continued Scheffel. “The time for that reform is now.”

A similar telecom reform effort is underway on the federal level after the Federal Communications Commission in November issued an order reducing subsidies from the Universal Service Fund. Those reductions will take place in phases, gradually affecting carriers across the nation.

CenturyLink, with more than 75,000 access lines and the most dominant recipient of the Colorado high-cost subsidy, stands to lose the most with the bill, or an estimated $50-60 million per year, which the company says could translate to declines or loss of services to more than 400,000 customers. The company has hired a large team of nearly two dozen lobbyists to fight the legislation and earlier this week released robocalls warning consumers that ending the subsidy would amount to a tax increase.

Sen. Mark Scheffel, R-Parker, makes a point about SB 157 to Statesman reporter Peter Marcus and other members of the Capitol press corps on Wednesday after a media availability about the legislation.

Photo by Jody Hope Strogoff/The Colorado Statesman

Tochtrop, who has touted the legislation as also being about creating broadband jobs in rural parts of the state, joked that the legislation is already creating jobs, considering the large pool of lobbyists hired to fight the bill.
“Like I said, it’s a jobs bill, and apparently it is, judging by all the lobbyists,” she quipped.

Murray also attacked CenturyLink, saying at the Wednesday press conference, “We’ve already seen that those opposed to this bill are willing to do anything to kill this bill and to keep their sweetheart deal… But fear, half-truths and threats just won’t cut it.”

Jim Campbell, regional vice president for legislative affairs for CenturyLink, says the elimination of the subsidies for his company would mean, “A lot of revenue we lose right away.” As a result, CenturyLink is vehemently opposing the bill, citing the cost concerns.

“We can make some of that up by selling stuff; we can make some of it up with price increases, or you make it up with job loss,” Campbell told The Colorado Statesman, adding that the average customer could see a price increase of as much as $59 per month to cover the loss of the subsidy.

But Soards doubts that CenturyLink would raise costs on customers in competitive parts of the state where there are five or more customers, as is the trigger for eliminating the subsidy.

“I would be surprised if any company would dramatically raise their prices in areas where customers have six or more choices. That’s not a very sound business plan in my mind, but good luck to them,” he said.

The Colorado Telecommunications Association is also raising fiscal concerns, but on the other side of the argument. The organization points out that because of the FCC ruling in November, small carriers stand to lose millions in federal subsidies. The association argues that it is necessary for the smaller providers to receive an exemption in order to help offset some of the federal subsidy reductions.

“Part of our argument for our ability to get more money out of the state fund is the loss that we have on the federal side of that,” said Peter Kirchhof, vice president of the Colorado Telecommunications Association. “That’s not our only reason, but that plays into that.”

CenturyLink employees, however, are worried that their company could lose jobs, and they have launched a campaign urging lawmakers to oppose the comprehensive reforms. More than 2,500 e-mails have been sent to legislators as part of the campaign. The e-mails read, “I live and pay taxes in Colorado. Don’t take my job away from me or my co-workers. Vote for Colorado jobs. VOTE NO ON SB-157.” The campaign also includes a Twitter account, @Don’tHangUpOnCO, and a Facebook page, “Don’t Hang Up On Rural Colorado.”

Campbell insists that individual employees are coordinating the campaign, not the company itself, but Sen. Pat Steadman, D-Denver, finds it curious that he received the e-mails all at once. He posted a Tweet on Monday that read, “Note to CenturyLink: message received, over 800 before we blocked. Odd that so many of your employees clicked ‘send’ at same moment…”

In addition to phasing out the High Cost Support Mechanism, SB 157 would also eliminate price controls for retail services, allowing all telecom companies in Colorado to move away from so-called “rate-of-return” regulation and instead institute pricing flexibility, such as in setting prices for bundling phone and Internet services. The bill would also enable carriers to lower access rates.

Soards says that in today’s modern age, where telecommunication is more about instantaneous data transfer, there is less of a need for access rates.

“Access rates were a creature of another era when phone companies compensated each other for varying traffic,” he said. “Distance used to mean something in telecommunications when long distance calls were expensive… those things have all changed; the market has changed. When you send an e-mail to somebody, or even when you use your cell phone, long distance doesn’t matter.”

Campbell took a jab at AT&T for its support of the legislation, charging that the carrier is getting everything it wants with the reduction in access rates.

“They get what they want, there’s no threat to jobs for AT&T,” he said. “The devastating effect of jobs investment would be solely borne by CenturyLink.”